Revisiting the takeover efficiency argument and the role of the board

Despite the synergistic objective of takeovers, shareholders of acquiring companies can experience loss or limited gains when acquisitions are concluded with high takeover premiums. This article argues that, since takeover premiums are determined by acquiring management boards, and losses to shareholders are unlikely to be remedied via breach of directors ’ duty, it is desirable to challenge the discretionary role of managements. It suggests that managements should declare their acquisition objective, to enable shareholders to manage their expectations. If managerial objective is to obtain synergistic gains, they should be required to demonstrate the extent to which takeover premiums that are beyond certain premium threshold would yield synergistic gains, to obtain shareholder approval. Alternatively, if their immediate acquisition objective is to obtain the bene fi ts of controlling the target company, then the need for shareholder approval can be dispensed with, as long as the premium paid matches the assets of the target company.